The government has exempted businesses from deducting GST on advances received for supplying goods in future, a move which will help unblock working capital of firms. The Central Board of Excise and Customs (CBEC) last month said that businesses with turnover up to Rs 1.5 crore are exempt from deducting Goods and Services Tax (GST) on advance payment for supply of goods.
The CBEC, through a notification, has now extended this exemption to all businesses, except for those who have opted for composition scheme under the new indirect tax regime.
The composition scheme can be availed by businesses with turnover up to Rs 1 crore and they can pay taxes at a lower rate of 1 per cent, while for restaurants the rate is 5 per cent.
“This comes as a huge sigh of relief for businesses both in terms of compliance as well as working capital loss,” EY India Tax Partner Abhishek Jain said.
Businesses had lobbied hard with the Finance Ministry to exempt them from deducting GST on advances received for supply of goods as this norm was not there in the erstwhile excise duty or VAT regime. “In a significant relief to the industry, the government, through a notification, has done away with GST on advance received against supply of goods. This meets the long standing demand of the industry, particularly by FMCG and auto,” PwC Leader-Indirect Tax Pratik Jain said.
However, service providers will have to continue to deduct GST on any advance received as payment, in line with the provisions under erstwhile service tax laws.
“While the issues in respect of payment of GST on advances for supply of goods, which was leading to significant working capital and other challenges, appears to be resolved for now, similar working capital blockages for service providers continue,” Deloitte India Partner GST M S Mani said.
GST, which subsumed over a dozen taxes including excise, service tax and VAT, was rolled out from July 1.